David Cummings on Startups

Author: David Cummings

  • Investors and Conflicting Investments

    As more startups emerge around today’s popular trends (e.g. social media, big data, sales technologies, etc) it’s inevitable that investors will start seeing startups that are competitors of existing investments (some loosely competitive and some that are direct competitors). Just this past week I talked to two different investors that mentioned they looked at one of the Atlanta Tech Village companies raising money and had to pass because it was close to being competitive with an existing investment.

    Here are a few thoughts on investors and conflicting investments:

    • Entrepreneurs pitching at large venture conferences should share enough information to get investors interested in a private meeting, and expect that everything that’s shared publicly will get back to their competitors
    • Venture investors don’t sign NDAs since they hear so many entrepreneur pitches, it’s difficult to keep track of who said what and what information is public vs confidential
    • Occasionally investors will have an existing portfolio company pivot and become a direct competitor to another portfolio company, making for a difficult situation
    • Some venture firms have multiple groups within their firm (e.g. an early stage team and a growth stage team) such that they agree to not share information (a Chinese wall) if they’re evaluating competing companies at the same time (usually different stage companies in the same industry — we experienced this at Pardot)

    Investors and conflicting investments are a standard part of the startup world. Entrepreneurs would do well to research the investor’s portfolio in advance of pitching as well as find the right balance between sharing too little or too much information.

    What else? What are some other thoughts on investors and conflicting investments?

  • Three Shortcuts to Save Time and Help Get Things Done

    I always enjoy little time savers that also help get things done in a more consistent manner. As an example, whenever I get a request to meet I like to use a standard response like “Great, let’s get together. Here’s a link to my self-service calendar on Calendly.” Setting these shortcuts up isn’t hard, but it does take some time and effort. Here are my three favorite:

    These three time savers make my life easier and help me get more things done.

    What else? What are some other shortcuts you like to save time and help get things done?

  • Questions for Someone Getting Involved in the Startup Community

    In addition to spontaneous pitches, I’ve received a number of requests about how to get more involved in the startup community. Before talking about specific organizations, events, and programs, I start by asking a series of questions related to areas of interest and where they’d like to add value. Here are a few of the questions:

    • What size and stage startup is most interesting to you? Idea stage? Seed stage? Early stage? Growth stage? Many senior executives say they want to help startups with at least $5 million in revenue, to which I reply that we’re working hard to grow more but that there aren’t very many.
    • What markets and verticals do you have experience in? As an example health IT is different from marketing automation which is different from mobile device management.
    • What technologies are exciting to you? Internet of things? Big data? Cloud computing?
    • How specifically do you want to help? As an advisor? Mentor? Investor?
    • What do you want in return? Cash? Equity? A job? Personal satisfaction from helping an entrepreneur?

    After getting a solid understanding of what the person’s looking for and how they want to engage, it’s easy to point them in the right direction.

    What else? What are some other questions to ask someone looking to engage in the startup community?

  • Making the Spontaneous Pitch

    At the Atlanta Tech Village I bump into new entrepreneurs on a daily basis and get spontaneously pitched a couple times per week. Naturally, most of the entrepreneurs are nervous but really want to tell me about their startup. After hearing dozens of these, here are a few tips for entrepreneurs:

    • Rehearse your pitch in advance so that it’s always polished and ready (Pitch Practice is every Friday at the Village)
    • Keep the pitch brief and to the point (don’t show up and throw up)
    • Provide social proof and evidence of progress (ideas are worthless — it’s all about the execution of the idea)
    • Make the ‘ask’ at the end of the pitch (e.g. want to raise money, intro to potential prospects, need some key recruits, seeking advisors, etc)

    Entrepreneurs, especially less sales-oriented entrepreneurs, need to practice their pitch and deliver it with confidence at all times. Making spontaneous pitches is part of the process and should be done well.

    What else? What are some other thoughts on making a spontaneous pitch?

  • Startup Communities and Help Through Introductions

    When I moved to Atlanta in 2002 I didn’t know anyone in the startup community. Whenever I’d read about a local tech startup in the Atlanta Business Chronicle I’d send the entrepreneur an email, explain my business, and ask them to lunch. Most of the time nothing came of it but a few times it worked out and I had the chance to meet several entrepreneurs in town. My first real intro to a number of people in the startup community came by way of the Atlanta Technology Angels (ATA). I was trying to raise money for Hannon Hill and met with several local venture firms as well as ATA. Through ATA I was introduced to the ATDC, angel investors, and other entrepreneurs in the community. While I didn’t raise any money, it was good to get more connected in the community. The main downside was that it took a year of effort and I was eager to meet more people at a faster pace.

    Now, with the Atlanta Tech Village, Atlanta Startup Village Meetup, and Startup Chowdown, entrepreneurs that want to get plugged into the community can meet dozens of entrepreneurs within a week. When entrepreneurs need help, high quality introductions are faster and stronger. Here are some of the most common networking requests:

    • Potential sales and customer discovery prospects
    • Candidates for job openings
    • Introductions to potential investors
    • Connections to entrepreneurs and advisors with relevant experience

    Stronger, denser startup communities result in faster, better introductions that help improve the chance of success. As much as entrepreneurs want to go it alone, quality introductions can make all the difference.

    What else? What are some more thoughts on startup communities and help through introductions?

  • Power of an Asset’s Value Compounding Annually

    In yesterday’s The Upshot section of the New York Times, there was an article titled Sterling to Reap 15,900 Percent Return on Sale. From the article, “Sterling bought the Clippers for $12.5 million in June 1981, according to some reports, and he’ll get a tidy 15,900 percent return over 33 years, an annualized rate of 16.6 percent.” Think about that for a second: turning $12.5 million into $2 billion is amazing (assuming the sale goes through). That’s the power of an asset compounding annually over an extended period of time.

    Let’s take a look at an example startup with revenue doubling every year:

    • Year 1 – $1,000,000
    • Year 2 – $2,000,000
    • Year 3 – $4,000,000
    • Year 4 – $8,000,000
    • Year 5 – $16,000,000

    At some point the law of large numbers kicks in and it becomes much more difficult to sustain the high growth rates. If you assume it’s a technology company valued at four times revenue, the value of the company increased from $4 million in year one to $64 million in year five — impressive appreciation. The takeaway is that sustaining a high growth rate over an extended period of time is one of the best ways to build value. Albert Einstein’s famous quote rings true, “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it. (source)”

    What else? What are some other thoughts on the power of an asset’s value compounding annually?

  • Community Pride Without Enough Belief

    Next to my desk at the Atlanta Tech Village I have a framed newspaper cover from a 1990 The Atlanta Journal announcing that Atlanta had been awarded the 1996 Olympics. On the cover, the headline says “Word-class! Proud city brings home the gold” and then, on a lower section, the headline reads “We finally won something!”

    The Atlanta Olympics headlines and sentiment could have been written by every startup community across the country, outside of Silicon Valley. Everyone is proud of their city, yet is surprised when they finally “win” at something in the startup scene (raise a big round, have a nice exit, build a new facility, etc). Where’s the belief? Where’s the confidence?

    One of the things I’m accused of is having too much confidence, especially when I lack information. My goal isn’t to provide false hope, rather, I have a strong internal locus of control and belief in my gut. I tell it like I see it. When it comes to the Atlanta startup community, I have tremendous pride and belief that we have all the necessary ingredients to be a top 10 city in the country. Regardless, I’d like to see more entrepreneurs with community pride also believe they can make their startup ecosystem even better.

    What else? What are your thoughts on people having community pride without enough belief?

    Here’s a photo of the newspaper cover:

    Atlanta wins the Olympics - Atlanta Journal

  • Slides for Presentations and Slides for Handouts

    Earlier today we put on a program connecting executives from Children’s Healthcare of Atlanta with health IT startups from the Atlanta Tech Village. Seven startups had 15 minutes each — five minutes to present and 10 minutes of Q&A — followed by lunch at the end. Most of the presenters used slides with limited product demos. While the event was a success and everyone received value, five out of seven startups used slides on the big screens that were designed as handouts, not for presentations.

    Here are a few thoughts on slides for presentations, as different from slides for handouts:

    • Slides should have minimal text (I like to have no more than 10 words)
    • Font sizes shouldn’t be smaller than half the oldest age in the audience (e.g. if someone in the audience is 60, the font size shouldn’t be smaller than 30)
    • Tell a compelling story while still getting to the value proposition quickly
    • Make the ‘ask’ at the end of the presentation
    • Presentations should be rehearsed to fit the allotted time (every presenter went too long)

    The next time you open Keynote on your Mac, ask yourself if it’s for presentations or for handouts.

    What else? What are some other thoughts on slides for presentations as different from slides for handouts?

  • Initial Customers Always Find Bugs

    Signing the first few customers is incredibly difficult (see The First Five Customers), yet after all that effort, the next challenge is keeping them as they inevitably find product bugs. No matter how extensively you test the software, end users always come up with edge cases and scenarios that you never dreamed of trying.

    Here are a few thoughts to keep in mind with initial customers and bugs:

    • Product bugs are normal and it’s best to budget development time in advance for fixing them
    • Apologize whenever a customer finds a bug and set expectations that it will be fixed quickly
    • Find a balance between automated testing (unit, integration, etc) and human testing
    • As the product matures, new customers will stop finding as many bugs

    Product bugs are commonplace. With customers it’s critical to communicate and get things fixed quickly, especially for the early adopters. Over time things will settle down and the product will become more stable.

    What else? What are some other thoughts on initial customers always finding bugs?

  • Slowly Letting Go of Some Scrappiness

    Until a startup achieves product/market fit, has a repeatable customer acquisition process, and enters scaling mode, it’s important to be as scrappy and cost effective as possible. Every dollar wasted is another dollar of dilution and a dollar closer to not having enough runway to figure out how to make things work (see Figure Out How to Stay in the Game Long Enough to Win). Once the business is scaling and is focused on maximizing growth, it’s important to slowly let go of some (not all!) of the scrappiness.

    Entrepreneurs that have bootstrapped the business have an especially hard time letting go of some of the scrappiness as the business starts scaling. With so few resources to begin with, there’s no choice but to make every dollar count, such that scrappiness is deeply ingrained within all the team members. Only, as more and more market opportunity is presented, the tendency is to continue using the same approach when it’s better to ease up a bit and try new things to grow faster.

    As an example, at Pardot we were having a hard time finding software engineers. We had always stayed away from using recruiters because we wanted to save money and figured that we’d eventually find great team members. After not having luck for several months we decided to hire recruiters (see Working with Recruiters in Startups) and offer a $10,000 referral bounty to anyone that sent a new hire our way (the bounty was for anyone, not just employees). By investing in ways to broaden our search for talent, we were able to bring on more engineers and grow the business faster. It was the right move to let go of some of our scrappiness.

    What else? What are some other examples of slowly letting go of some scrappiness to grow faster?